Mesirow Financial has
merged its clearing operations with RBC Clearing Corp. RBC is a wholly owned
subsidiary of Royal Bank of Canada, the fifth largest bank in North America. http://www.rbccorrespondentservices.com/index.htm As a result all of Lemley Yarling Co trades will be
cleared through RBC beginning March 2. Clients should have received a package
of forms from RBC that need to be completed and signed and returned in the
return envelope to Kathy at our Hinsdale Office. If clients have any questions
they should call Kathy at 1-800 793-3665 – 8AM to 3PM CT Monday through
Friday. The change should be seamless except for the need to set up a new
account/password to view accounts online at a new website called Investor
Select. There will be a 15 to 25 day lag for the online accounts to be viewable
and that should be the only interruption.

March 30, 2012

Again
this week there was no activity. Today marks Quarter end and after the
investments of 2nd quarter funds by the big boys and girls on Monday and
Tuesday the markets may provide a better picture of the coming quarter. We have
felt that the U.S. economy is recovering - that is why we were invested until
February. But the markets are ahead of themselves and need a correction or at
least a rest.*****

March 23, 2012

There
was no activity this week as we remain in cash awaiting a 10% correction from
whatever level.

Bulls
48%; Bears 23%.

We
have company in our correction outlook:

In his latest weekly note, fund manager John Hussmanis... bearish
on the market. This has been his stance for a couple years now, and this
week he looks at a technical indicator showing signs of excessive optimism:

As of Friday, the S&P 500
was within 1% of its upper Bollinger band at virtually every horizon, including
daily, weekly and monthly bands. The last time the S&P 500 reached a
similar extreme was Friday April 29, 2011, when I titled the following Monday's
comment Extreme Conditions and Typical Outcomes.
I observed when the market has previously been overbought to this extent,
coupled with more general features of an "overvalued, overbought, overbullish,
rising yields syndrome", the average outcome has been particularly
hostile:

"Examining this set of
instances, it's clear that overvalued, overbought, overbullish, rising-yields
syndromes as extreme as we observe today are even more important for their
extended implications than they are for market prospects over say, 3-6 months. Read more: http://www.businessinsider.com/*****

Raymond
James' Jeff Saut -- who's been bullish for over two years -- is saying
the same thing.

The call for this week: Study
the enclosed chart from the good folks at Zero Hedge.
There is a remarkable similarity to the divergence that took place between
stock prices and U.S. Economic Data Trends in April 2011 right before the SPX shed 8%.
Take that in concert with what happened to interest rates last week, a dearth
of internal energy for the equity markets, a S&P 500 that is 2 standard
deviations above its 50-day moving average, rumors Operation Twist is over,
Chinese consternations, regulators gone wild, rising gasoline prices, massive
corporate insider selling, and my sense that in the short run all of the good
news is on the table, and it appears as if the easy money has been made. That
said, I still would not get too bearish because I do expect stocks to be higher
by year end.
Read more: http://www.businessinsider.com/jeff-saut-divergence-between-market-and-data-looks-like-last-spring-2012-3#ixzz1pZVtbf8w*****

Technically, ever-rising share
prices sow their own seeds of potential destruction. For example, I would beware
the VIX, which is the best measure I know of measuring
complacency in a market that has had no pause but contains a number of
technical flaws.

Importantly, I depart from
some of the (newly) converted bulls in that I do not expect that P/E multiples
will reach their historical multiplier (of about 15x) experienced over the last
five decades, as the new normal of slower and below-trend economic growth and
other factors weigh on valuations. (Implicit in my melded fair market value of
1335 for the S&P 500 is a 13x P/E multiple.)…..

Barclays U.S. equities strategists Barry Knapp and Eric Slover
in a note out late last week write that this could easily be a "heads I
win, tails you lose, scenario." If past rounds of easing are any
indication, then the coming end of the Federal Reserve's "Operation
Twist" will launch a pullback in equities:

Barclays Capital

The only way an end to
Operation Twist doesn't cause such a reaction is if economic data deteriorate
and the Fed decides that more easing—likely in the form of sterilized QE—is
necessary. This, too, has a downside risk for equities, since it means the
economy is not as strong as investors expected it to be.

Knapp and Slover explain this
Catch-22:

We believe that a sustainable
period of equity market multiple expansion is unlikely …..

On
the contrary side Goldman sells sell bonds and buy stocks. GS makes the
argument that stocks are at a generational value versus bonds. We agree. Bond
prices are going to drop in value as interest rates rise with the recovering
economy and as the Fed ceases holding short term interest rates at artificially
low levels. Barclays makes the same argument above but Barclays suggest that
the losses in bonds will spook all investors.

Goldman portfolio strategists Peter Oppenheimer
and Matthieu Walterspiler are out with a doozy of report, basically presenting
a big bullish case for stocks, relative to bonds.

Undoubtedly this is going to
be the story of the day, and will be discussed quite heavily.

The report is titled The Long Good Buy; the Case for
Equities, and it essentially makes an equity-risk premium argument
that stocks are just impossibly cheap relative to bonds, and that the scenario
currently being priced into the markets is just unrealistically negative...
even with the bug runup in stocks since early 2009.

David
Tice, the former chief portfolio strategist for bear markets at
Federated Investors, is bearish.His 18-month target for the S&P 500 is
1,000, and he thinks gold is headed to $2,500 within the next two to three
years.Tice appeared on Fox Business News
this afternoon."We feel just like we did in 1999 and 2007," said Tice
"[During] both of those periods, people were positive about credit being
created, the central banks were easy, everybody was complacent, and we ended up
having a big accident."

March 9, 2012

There
was no activity in accounts this week as we await a correction greater than the
3% pullback experienced from Monday a week ago to Tuesday this week. The 30%
gain since October can be digested by range trading for a while or a one third
to one half retracements (8% to 12% pullback) of the move. We shall see. We
remain 100% cash.*****

The Payroll number was
encouraging with 227,000 new jobs in February and upward revisions of 60,000
jobs for the prior two months. And the Greek bond swap was accomplished with
over 95% of holders tendering. Of course the old trader’s saw is: How the
markets react to the news is more important than the news.*****

One sobering thought: the
Nikkei broke through 10,000 to the upside this week. In 1989 the Nikkei was at
40,000. *****

This is a utility. Crazy:

Compensation for the chief
executive of Wisconsin's largest electric and natural gas utility totaled more
than $11 million in 2011. Gale Klappa was paid about 10 percent more than
the previous year as chairman of Wisconsin Energy Corp. His base pay was about
$1.2 million, but his total compensation includes incentive pay and stock
awards.*****

The markets are either going
to form duel double tops—should the S&P remain under 1380 and if the NDX is
capped by 2650—which would be a bearish sign, or the tape,
emboldened by the Greek debt accord and empowered by constructive economic data
(note the .2% up-tick in the labor participation rate), will break out to fresh
cycle highs (which would stop out the last batch of those dancing bears).

Random Thought:

The ISDA—International Swaps
and Derivatives Association—is meeting as we speak to determine if the Greek
debt restructuring constitutes a “credit event.”

If it does—and in my opinion,
it should—that will trigger credit default swaps on Greece, where the unknown
risk will surround who wrote these contracts, and how that reverberates up and
down the financial food chain. If they don’t trigger, there will likely be
unintended consequences of a different breed as holders of these insurance
contracts may no longer trust their ability to perform as anticipated when they
were positioned.

In technical terms, this is
“sort of a big deal” so keep your eye on the outcome and understand that either
way, there will be ramifications under the financial hood.

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Website Information

For those folks who have accounts with us, you may now go to:
https://eview.mesirowfinancial.com
and fill out the account information and view your accounts online. If you
have trouble filling out the form, or in getting online, call and we will
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You will be prompted to make this change when needed.

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our updated Form ADV, Part II for your perusal. If any present client would like a copy, please don't hesitate to write, e-mail, or call us.

A list of all recommendations made by Lemley Yarling Management Co. for the preceding one-year period is available upon request.

The factual statements herein have been taken from sources we believe to be reliable but such statements
are made without any representation as to accuracy or completeness or otherwise. From time to time the Lemley Letter, or one
or more of its officers or employees, may buy and sell as agent the securities referred to herein or options relating thereto, and may
have a long or short position in such securities or options. This report should not be construed as a solicitation or offer of the purchase
or sale of securities. Prices shown are approximate. Past performance is no indication of future performance.